Clean Run Magazine - December 2006 - 16

HANDLING YOUR CANINE SPORT BUSINE$$ Take a Bite Out of Your Tax Bill By
Geoffrey Goudy, CPA As a business succeeds its tax bills begin to rise.
Over Single-Participant 401 k Plan time the dollars and anguish are real.
There is no Most business owners immediately consider a SEP retirement
perfect solution yet certain smart options exist even arrangement for
their small business. It's low-cost, simple to set up, and the logical
plan for the Schedule C filer. A better plan, for the smallest of
enterprises. in most instances, exists for those business owners who draw
S Corporation W-2 compensation. The single-participant 401 k plan is an
extremely effective tool The most onerous tax burden to bear is the
Federal self- to set aside funds for future retirement needs and to reduce
employment tax for Schedule C filers. Often a hobby turns into current
federal and state income taxes. The following example a side business and
sometimes a career. As a business matures, best highlights its
effectiveness: owners seek liability protection and valid deductions. Once
these efforts are achieved or are exhausted, owners turn to their Gross
compensation $16,250 financial advisors for further suggestions. Employee
401 k contribution 15,000 T h e simplest and most effective suggestion is
to elect S FICA/Medicare withholding 7.65% 1,243 Corporation status for a
single-owner limited liability company, Federal withholding 7 which by
default is treated as a sole proprietorship that is State Withholding
required to file Schedule C. Yet, the Internal Revenue Service Net
Compensation $0 permits this type of entity to be treated as an S
Corporation Business Return: wage deduction $16,250 for tax purposes while
retaining its limited liability company Individual Return: wage income $
1,250 structure for legal purposes. Further, the business can contribute
an additional 25% of Thus, rather than have the entire amount of business
income compensation for employer contribution purposes or $4,063 subject
to both self-employment and income tax, the owner can for the example
above. Further still, a spouse can also participate instead determine the
appropriate salary and return of capital under this plan arrangement as
long as the spouse is gainfully allocations. And as an S Corporation,
expenses such as owner employed by the business and earns remuneration.
Yes, a smart payroll taxes and retirement plan contributions are deducted
option indeed if maximum plan funding is desired and funds at the entity
level, not at the individual level. are available. And the most important
consideration, under IRS Revenue Please note that a SEP is often the
appropriate retirement vehicle Procedure 2004-48, a business can make this
election up to eight if you are unable to max out the 401 k plan. and a
half months after the business's year-end. Thus, a sort of do-over
decision can be made after all business facts and Health Savings Account
circumstances have been determined for a particular tax year. A smart
option indeed should an entity warrant change. I hesitate to discuss the
next suggestion as the U.S. tax code continues to change significantly
with each passing year. Please note that C Corporations, partnerships, and
multi- Health savings accounts HSA are becoming a popular tool to member
limited liability companies can also elect S Corporation combat the rising
cost of health care and poor use of medical status under separate
regulation. However, strict sole services. proprietorships, a non-legal
entity, cannot. At its core, health savings accounts marry a
high-deductible health insurance policy with an investment vehicle.
Fortunately, | 16 Clean Run December 06
Clean Run Magazine - December 2006

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